The Signalling Effect of M&A Announcements on Performance

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This thesis investigates if and to what extent announcements of mergers and acquisitions act as a signal to the market, thereby influencing the short-term performance of acquiring companies. Also the effects of the method of payment, the experience of the acquirer and the reputation of the target is analyzed as they can either enhance or diminish the effects of the announcement as a signal. Due to the inherent uncertainty of the M&A landscape due to information asymmetry, investors rely on observable characteristics to evaluate a company. The assumption here is that the announcement provides a particular signal to the market about the quality of the venture. Using a sample of 85 transactions in Europe over the period of 2017 to 2019, no significant results were found when looking at the performance enhancing or diminishing effect of announcements. Moreover, an additional multiple regression analysis showed no significant moderating effects. Thus, the effect of a M&A announcement as a signal is somewhat limited, and that acquiring companies should not extensively concern themselves with the preconditions of signals surrounding M&A’s. This study contributes to the stream of literature on signalling theory, and especially on its relation with M&A events.
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